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Is public debt harmful towards economic growth? New evidence from South Africa

Mhlaba, Ncebakazi and Phiri, Andrew (2017): Is public debt harmful towards economic growth? New evidence from South Africa.

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Abstract

The issue of whether public debt is useful or harmful towards economic growth is one of the most prevailing debates in the literature with no consensus existing on the subject matter. The study employs the ARDL model to examine the long-run and short-run effects of public debt on economic growth for South African data spanning a period between 2002:q2 to 2016:q4. Our sensitivity analysis consists of re-estimating our empirical regressions using two sub-samples dataset corresponding to the pre-crisis period (i.e. 2002:q1 to 2007:q2) and the post-crisis period (i.e. 2007:q3 to 2016:q4). All estimated regressions unanimously find negative long-run debt –growth relationship although the short-term effects are unclear with some evidence of a positive short-run relationship between the time series specifically in the post-crisis period. Overall, our empirical results have some useful ramifications towards policymakers.

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